Global hotel brands check in to Dublin but sector faces big challenges

Dublin is the hotbed of Ireland’s hotel sector and the city is back in vogue for international hotel brands. As the impact of Covid-19 disappears in the rear-view mirror of the hotel sector, the fastest-growing global accommodation brand names are once again lining up to launch forays into the city’s market.

This week, it was the turn of The Hoxton, a hip city brand devised by Indian-UK entrepreneur Sharan Pasricha’s Ennismore group. It announced that it will open its first Irish hotel in the old Central hotel in Dublin’s south city centre in 2024, after the listed property is revamped by its owner, Deutsche Finance.

Others pepper the city. Preparatory work started in recent weeks near St Patrick’s Cathedral on the site of the city’s first CitizenM, a Dutch design-led brand devised by another Indian tycoon, Rattan Chadha. According to hotel industry sources, the 247-bedroom property may not be Chadha’s last in Dublin.

Budget brand, Point A, opened its first Irish hotel on Dublin’s Parnell Street at the beginning of the year. Closer to the River Liffey in the heart of the city’s fruit markets district, work has begun on the first Irish property by Ruby Hotels. The Ruby Molly, as it will be known, promises to bring “lean luxury” hospitality to the city when it opens next year. Motel One, a German chain, plans to open a 310-bed hotel on Abbey Street by the end of this year.

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a never-ending and damaging staffing crisis is forcing many hotels to rethink their hiring strategies and, in some cases, even their operating models

Aparthotel brands are springing up all over the city. According to figures supplied by property agency Savills, aparthotels are set to grow from 3.8 per cent of the city’s hotel stock in January to 6.8 per cent by the end of December. The director of the Savills hotel division, Tom Barrett, estimates that, overall, close to new 2,500 hotel rooms will open in the city this year, which is “about 1,000″ rooms behind where it would have been without Covid. He expects another 1,000 annually in the following two years.

Yet even as some of the verve returns to Dublin’s hotel market, a sense of uncertainty lingers amid the renewed buzz brought by the battalion of brands knocking at the city’s door. Several projects in edgier areas such as the Liberties are now thought to be in doubt, as some international funders develop cold feet instead of the new hotels they had once planned.

Much to the chagrin of Ireland’s top hoteliers, accusations of “price gouging” abounded during the summer recovery. But in recent weeks that has given way to worries that the cost-of-living crisis could spark a snapback in rates, and among hard-pressed customers’ ability to pay. Occupancy rates, which briefly topped 90 per cent in summer, are dipping quickly once again.

Rocketing energy bills are putting pressure on earnings, especially at older, draughtier properties and those with expensively-heated swimming pools. Meanwhile, a never-ending and damaging staffing crisis is forcing many hotels to rethink their hiring strategies and, in some cases, even their operating models.

After three years of Covid turmoil broken by periods of effervescent recovery, the Irish hotel sector is again at risk of drifting into mercurial uncertainty. Dublin is the tip of the spear.

International brands are generating much of the buzz, but the most significant expansion in the Dublin and Irish hotel markets over the past five years has come from an indigenous player, the Dalata group, which is by far the Republic’s biggest operator with its Maldron and Clayton brands.

Dermot Crowley, the group’s chief executive, is a level-headed character. But although he remains sanguine about the sector’s potential to safely navigate the winds of the cost-of-living crisis, especially in Dublin, he is still irked by the “price gouging” accusations that some politicians directed at hotels as many jacked up rates for their last few rooms in the busy summer. Crowley believes the rip-off tag has the potential to interplay negatively with the staffing crisis.

“It makes it harder to attract staff,” he says, sipping a coffee in the lobby of the group’s Clayton hotel in Leopardstown. “You don’t want to go home to your mother and say: I’ve just joined the price gougers.”

Whatever public sympathy accrued to hoteliers during the pandemic — when it was recognised that Dublin hotels were hardest hit — it evaporated during the summer when stories emerged of rooms unavailable even in modest hotels for less than €300 or €350 per night. The Irish Hotels Federation responded that STR data showed average hotel rates were in the region of €170.

We’ve had the same occupancy in 2022 that we had in 2021, but the spend per head is way down

Crowley, meanwhile, notes that Dalata’s average room rate in Dublin was €166 between May and August: “That’s good value for four-star properties in a major city centre. Picking out specific rates on specific nights (such as the Garth Brooks concerts or All-Ireland matches) doesn’t represent the industry as a whole. Every industry has its people who might misbehave. It’s disappointing when you see the entire industry painted with the same brush.”

He believes the capital’s hotels sector can ride out any storms ahead due to the energy crisis or an ensuing economic downturn, especially with a strong dollar making Ireland a cheaper destination for the American travellers that stay in the city’s upmarket hotels. Some luxury properties operating under US brands, such as the InterContinental in Ballsbridge, get up to 50 per cent of their business from the US.

“Corporate customers are starting to travel again. Normally going into a recession, corporates would be talking about cutting. But you can’t cut back from nothing, as they were barely travelling before. Conferences are only just starting again. You have the strong dollar. These are all positive for Dublin, especially. Overall I’m still optimistic for the market ahead. Whatever it throws at you, you get on with it and react accordingly. This will be nothing like Covid.”

There may be turbulence ahead, however, for hotels that rely on the domestic leisure market. Mortgage rates will be higher by the end of this winter compared to the rates at the end of the summer just gone. Add in soaring energy prices and rising food bills, and Irish customers will have significantly less disposable income to spend on nights away. They are unlikely to dip too deeply into household savings for them, either.

John O’Sullivan chairs the Hodson Bay hotel group that is owned by him and his family. With the Galway Bay hotel, the Hodson Bay and Sheraton in Athlone, and the relatively new Hyatt Centric in Dublin city, the group has a rounded view of the impact of economic events on branded and unbranded hotels in and out of the capital city. It also doesn’t have the economies of scale of a group as large as Dalata.

O’Sullivan is more worried about the impact that the local economic downturn may have on trade. When the Irish economy slows down, he says, “people zip up their pockets”.

“We’ve had the same occupancy in 2022 that we had in 2021, but the spend per head is way down [across the group],” he says. “This is going to be a tough, tough winter for many hotels. Irish people will only go to hotels in January if the prices are good. With all our costs going up and our revenues going down, this is a recipe for a perfect storm.”

The Irish Hotels Federation recently warned the cost of electricity for many hotels is up 400 per cent since before the pandemic, and 300 per cent on gas. It also said laundry costs were up almost 30 per cent in the past year, while foods is up 22 per cent and the wholesale price of drink had risen 12 per cent. Sean O’Driscoll, a co-founder of the Cliste Hospitality hotel group, which runs 11 hotels across the country, told The Irish Times this week that the average hotel might need to add about €20 on to nightly room rates to cover inflation.

There are good hospitality employers. I know this from my research

One area where costs are escalating quickly is labour. An acute staffing crisis has hampered the sector for about five years and even longer for chefs, of which there is a national shortage of 7,000 to 8,000. Crowley says the staffing problem has not been as bad for Dalata, the Irish sector’s only listed operator and its biggest player by far. It kept much of its teams intact throughout the pandemic and invested heavily in training for its staff through its Dalata Academy programme. Crowley says it also recently doubled the allowance that each its head chefs get for staff food — all workers are fed on each shift.

“The first thing I do when I go to one of our hotels is I visit the staff canteen, the staff changing rooms and I ask the chef to show me the staff menu. Anyone who knows me knows that I see our people as the most important aspect of the company. But we have massive natural advantages versus the smaller operators. They can’t afford initiatives such as the Dalata Academy. I’m always careful to say that the Dalata our experience is not necessarily the industry experience of things.”

Fáilte Ireland, the State tourism agency, has launched a number of schemes to get hotels and other hospitality employers to tackle the staffing crisis by improving working conditions, which traditionally have been viewed sceptically by many employees due to long, unsocial hours and low pay. The agency’s most recent research shows that pay rates and conditions have improved in the past year, and that the staffing crisis is easing.

University of Galway academic Deirdre Curran is a leading researcher on the working conditions of the industry’s staff. She told an Oireachtas committee during the summer that her research showed that many staff in the sector were in despair at working conditions.

Landmark research she conducted in 2019 — the first major study undertaken of employees’ attitudes to their working conditions in the sector — found that almost two-thirds had witnessed or experienced bullying. One fifth got no holiday pay. About half didn’t get their legally mandated breaks. About 43 per cent did not have proper contracts of employment.

Fáilte Ireland’s most recent studies suggest the tide may be turning on a few of these issues, albeit slowly. But Curran agrees that the research suggests that the staffing crisis in hotels, and other industry employers, is to a degree “self inflicted”.

She maintains that the industry has “an endemic culture of exploitation [of workers] in excess of what you would expect”. Part of the reason, she argues, is that businesses such as hotels are hierarchical and the working environment is “intense”.

“There are good hospitality employers. I know this from my research,” she says. But she argues that while many owner-managers of smaller properties have a “passion for the business”, they may not know how to manage people properly.

The effects of the pandemic have exacerbated some issues, she says. Experienced staff are more overworked because they have to train up more inexperienced new recruits drafted in to fill the gaps. Some didn’t stick around after the Covid restrictions ended. Fáilte Ireland’s research shows that a significant minority of hotel staff who were on the Pandemic Unemployment Payment switched to working in other sectors when the payments ended.

Curran argues there was a “moment of enlightenment” for workers in many hotels and other hospitality businesses, which was triggered by the staff shortage and the realisation that they had other choices.

“We are at a tipping point. If these chronic staff shortages don’t push employers into doing things differently and better, nothing will. We need a [dedicated] institution to oversee employment conditions for hospitality workers,” she says.

Crowley and O’Sullivan both agree that the success of their respective companies in rebounding from the pandemic was rooted in their looking after as many staff as possible during periods of restriction, with assistance from the State in the form of wage subsidies.

“We have to acknowledge the support we got from the Government because it allowed us to keep our people on,” says O’Sullivan. “The industry would be a sad place today if it wasn’t for those supports.”

As the hotel sector negotiates the challenges of tight staffing, rising costs, fewer customers and an uncertain future, one thing that is sure is that hotels in the capital will come through the period ahead far quicker than their regional counterparts. Bigger hotels also will fare better than smaller ones.

In the capital, Barrett of Savills acknowledges that the development pipeline is slowing, even if a slew of new brands are still about to walk through the sector’s lobby swing doors.

“In 2017 and 2018, there were cranes all over the place. There were hotel planning permissions on many street corners,” he says. “But now building costs are up. Funding costs are up. People are still looking to build new hotels, but perhaps at a much more steady pace than before.”

Trade is still good in the city, he argues, and hotel assets can have a degree of “inflation proofing”, through elastic pricing.

As inflation remains rooted in the economy for the foreseeable future, they’re going to need it.